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Study: Cut Overhead to Hold Down Health-Care Costs

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Friday, September 12, 2014   

CHARLESTON, W.Va. - Much of the current debate over health care focuses on how to best hold down costs. A new study that looked at hospital overhead found it's more than four times as high in the United States as in Canada.

The report by Physicians for a National Health Program found that nationwide, hospital administrative spending totals $667 per capita in the United States, compared with $158 in Canada. Dr. Steffie Woolhandler, a study co-author, said high overhead also cuts into patient care.

"This is being drained away from the money the hospital has to pay nurses, doctors, buy drugs, etcetera," she said. "So, it means that 25 percent of every dollar spent on hospitals gets drained away just for paperwork."

The study found no evidence that higher administrative costs in the United States lead to better care or other benefits. Additionally, it said bureaucratic costs rose from 23 percent to 25 percent from 2000 to 2011.

Woolhandler said one solution could lie in a simplified payment system - such as Canada's "single-payer" system, where all payments come from a public fund, much like the model used for fire and police departments.

"Hospitals have to collect co-payments and deductibles from virtually every patient who rolls through the door," she said. "So, the payment system imposes a tremendous amount of complexity on hospitals in the United States."

Billing expenses are one large contributor to costs, according to the report, although it noted that marketing and profits also are driving up costs. Woolhandler estimated that if the United States switched to a single-payer system, the reform could save $150 billion annually.

The study is online at content.healthaffairs.org.


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